Why MCD Stock Is the Only Fast-Food Stock Worth Buying

When McDonald’s (NYSE:MCD) reported fourth-quarter earnings before the market opened on Jan. 27, it missed on both the top and bottom lines due to rising labor and commodity costs. I’m sure many investors expected MCD stock to get clobbered, especially given the volatility in the broader market. But that didn’t happen.

Instead, MCD stock opened down just 0.1%. At the day’s low, shares were off by 1.8%, and they closed just 0.4% lower. The next day, MCD closed nearly 3% higher.

For the fourth quarter, the company recorded $6.01 billion in revenue, up 13% year over year but $20 million shy of expectations. Net income rose 19% from a year ago to $1.64 billion, but adjusted earnings came in at $2.23 per share versus the $2.34 analysts expected.

One thing that likely kept MCD stock from selling off sharply following the announcement is the fact that the fast-food chain saw record same-store sales growth of 13.8% in the United States for 2021. Digital sales were also strong, totaling more than $18 billion for the year, while the company’s MyMcDonald’s Rewards loyalty program attracted 21 million active users in the six months since its launch.

However, it’s also possible that the lack of a post-earnings sell-off is because McDonald’s is the only fast-food stock worth buying.

MCD Stock Becomes a Pandemic Star

Fast-food stocks became pandemic stars as restaurants closed or limited indoor dining options. While they may not have shone as bright as Peloton Interactive (NASDAQ:PTON), Zoom Video Communications (NASDAQ:ZM) or Roku (NASDAQ:ROKU), the comedown has been much easier. MCD stock currently sits just over 4% below its all-time high, made in early January.

According to a report from Placer.ai, a consumer foot traffic analytics firm, McDonald’s “remained the undisputed king of [quick service restaurants] in 2021.”

The report notes that McDonald’s visits held up through the second half of 2021 despite surges in Covid-19 cases due to variants. In fact, the chain saw year-over-year increases in visits in August, October and December.

In December, when overall visits to fast-food restaurants declined 1.8%, McDonald’s visits rose 1.1%. For that month, Mickey D’s commanded a 43% share of nationwide visits to major burger chains. That was well ahead of Wendy’s (NASDAQ:WEN) and Restaurant Brands’ (NYSE:QSR) Burger King, with 12% and 10% of nationwide burger visits, respectively.

While smaller, privately held chains are posting faster growth, McDonald’s is the clear winner among large, publicly traded burger chains, based on Placer.ai’s data. MCD stock has also significantly outperformed its peers over the past year, rising 28% compared to 15% for WEN and a 2% loss for QSR.

MCD stock handily beat out the S&P 500’s 20% advance in the past 12 months. The only other fast-food operation to beat the broader market over that time is Yum! Brands (NYSE:YUM), which owns Pizza Hut, Taco Bell and KFC. YUM stock is up around 23% over the past year.

The Bottom Line on MCD Stock

Visits to fast-food chains are back at pre-pandemic levels, and McDonald’s is the star of the show. The stock’s performance is by far the best in the group even with its fourth-quarter earnings miss.

Inflation has proven a boon for the company, allowing McDonald’s to raise prices. And the chain is not likely to lower them as price increases slow.  Inflation has also hastened digitization and justified the ongoing makeover of stores to automate ordering further.

The biggest concern for McDonald’s is not competition from other large burger chains, but rather the growth of smaller, privately held chains, especially family-owned ones. These brands often have strong regional connections with customers and are overseen by active owners.

But when it comes to big burger chains, MCD stock is the clear choice for investors.

On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

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